Health Care Costs 101

The California HealthCare Foundation has published its update to its annual series of reports called Health Care Costs 101.  

The report includes a wealth of information describing health costs over a couple of generations, showing the way costs have risen, and how payment sources have changed over time.

The inexorable rise in health care costs, compared with overall inflation can be seen clearly on the 25th page of the presentation.  The graph there shows our national health expenditures in 2008 are 21 times higher than they were in 1970.  By comparison, overall CPI in 2008 is 5.5 times the level in 1970.

This graph, more than any other, points out the reason it was so important to pass health reform, so that the growth rate of health care costs can begin to be slowed.

If you are looking for detailed information on health care costs, clearly illustrated with helpful graphics, Health Care Costs 101, is must reading.

What's Wrong With Conservatives?

Is there something wrong with conservatives?  

During the healthcare debate, they were afraid that health reform would somehow give government control of their healthcare.  A government takeover of healthcare, they called it.  This, despite nearly 50 years of experience of government faithfully paying for the healthcare needs of America's most vulnerable populations -- the elderly and the poor.  Fifty years, and not a single death panel was ever convened.  To conservatives, the big hand of government is, apparently, too dangerous when it provides health insurance to those who have none.  Too dangerous when it makes life saving or pain relieving healthcare available to those who need it.

Yet conservatives like Republican Scott Brown and independent Joe Lieberman seem to have no concern at all with the big hand of government taking away the citizenship of those who may be charged with terrorist acts, even though they have yet to be tried and found guilty.  

Conservatives in Arizona are willing to allow the big hand of government to demand to see their proof of citizenship anytime a police officer has a reason, no matter how valid, to demand it. 

My last name ends in a vowel, and I don't normally carry identification that proves my citizenship, since my drivers license isn't issued with a requirement that I prove citizenship.  My Social Security card came with this warnings:  "Keep your card in a safe place to prevent loss or theft.  DO NOT CARRY THIS CARD WITH YOU."  So I don't.  I don't have a passport, or a copy of my birth certificate.  I suppose if I was foolish enough to travel to Arizona, I'd better visit the county courthouse and obtain a copy.

I hear conservatives shout they "want to take their country back."  I don't know what America they were raised in, but in my America, people could walk the streets confident that the Constitution provided protection against unreasonable search or seizure.  

In the America I was raised in, I was taught the Constitution provided protections for me if I was charged with a crime.  I didn't need to worry that the State Department could step in and remove my citizenship because the Constitution treated me as innocent until proven guilty at a trial before a jury of my peers.

I am much more afraid of the way conservatives are shredding our Constitutional rights than I am frightened of any terrorist or illegal immigrant.

If conservatives want their country back, they should start by not giving away the essential freedoms that have made America special.  Don't they understand the Constitutional rights they so eagerly would take from others, are also taken from them?

Health Reform Benefits Begin Now

The Patient Protection and Affordable Care Act of 2010 is scheduled to end the insurance industry's limited practice of rescinding health insurance policies after they have been issued and allow families to continue covering young adults to age 26, on September 23, 2010.  

These provisions will benefit some of the estimated 27,000 that the National Association of Insurance Commissioners reported had individual health policies terminated through rescission.  The provisions will also help millions who are graduating from high school but not intending to go on to college, or those who have completed their college education, but don't have employer provided health coverage.  It will also benefit those who can attend college only part time, and therefore have not been able to continue coverage as a dependent in family health plans.  

After the March 23 signing of the Patient Protection and Affordable Care Act of 2010 by President Obama, and this April 23 Reuters story, which describes instances in which WellPoint rescinded the health policies of women suffering from breast cancer, health insurers are beginning to get into the spirit of health reform.  WellPoint provided this response, to the Reuters story.  But most importantly, the company made the policy decision that it will implement the health reform law's provisions on rescission effective May 1, nearly five months earlier than required.  The company also announced that it will begin allowing dependents to be covered in family health plans to age 26, again, nearly five months sooner than required.  WellPoint's announcement is here.  It is the insurer for 35 million Americans. 

Other health insurers are getting into the act.  UnitedHealthcare announced here that it is implementing the Patient Protection and Affordable Care Act provisions on rescission immediately, and extending coverage to graduating students effective immediately, benefiting its 56 million members.  

Cigna, with 11.1 million members, has announced here it will extend coverage to dependents to age 26 effective June 1, nearly four months earlier than required.

Aetna, with 18.7 million insured, said here that it will extend coverage to young adults before the date required by the health reform law.

Most provisions of the Patient Protection and Affordable Care Act will be implemented over the next four years, but now that we have made a collective decision to do something about healthcare, several of the largest health insurers in the country are taking positive steps to implement that decision.  That's good for all Americans!

Streamlined MD Billing Could Save BILLIONS

The United States' "system" for billing health insurers for physician services is complex, expensive and inefficient.  Anyone who has spent time handling healthcare claims knows this.  

A study published April 29, in the journal Health Affairs, entitled "Saving Billions of Dollars -- And Physicians' Time -- By Streamlining Billing Practices asserts physicians spend 12 percent of net patient service revenue on billing and its excessive administrative complexity.  More importantly, four hours of professional time per physician and five hours of practice support time each week could be saved. 

These savings in professional time, if realized, will be the equivalent of an increase in the supply of physicians of between five and 10 percent, and would provide a material increase in professional productivity.

The U.S. system of billing third parties for health care services is complex, expensive, and inefficient. Physicians end up usingnearly 12 percent of their net patient service revenue to cover the costs of excessive administrative complexity. A single transparent set of payment rules for multiple payers, a single claim form, and standard rules of submission, among other innovations, would reduce the burden on the billing offices of physician organizations. On a national scale, our hypothetical modeling of these changes would translate into $7 billion of savings annually for physician and clinical services. Four hours of professional time per physician and five hours of practice support staff time could be saved each week.

The Patient Protection and Affordable Care Act will required health plans to adopt and implement uniform standards for the electronic exchange of health information to reduce paperwork and administrative costs.  But, the study points out that the health reform law will not address the larger problems of "excessive, different and changing requirements imposed on the exchange of all health information, including billing information."  

As anyone who has had experience dealing with hundreds of third party claims administrators and health insurers knows, there is much more work to be done.  But the $7 billion prize, and the windfall of additional physician time, make the effort worthwhile.  It will take Federal leadership, however, to bring together the disparate interests that perpetuate the status quo.

America Pays More for Branded, Less for Generic

Americans are asked to pay the highest prices in the world for brand name pharmaceuticals.  How much higher?  In the report Multinational Comparisons of Health Systems Data, 2009, Johns Hopkins researchers Gerard F. Anderson, Ph.d., and Patricia Markovich provide two examples.  

Lipitor is one of the world's most prescribed medicines to treat high levels of serum cholesterol.  In 2008, it was the most dispensed medicine and the medicine with the most sales revenue in America as you'll see in Table 1 and Table 2 here.  In 2006-2007, Americans and their health plans paid about twice as much as health plans and citizens of seven other nations paid.  Americans paid almost $1 per tablet (or 54 percent) more for Lipitor than Canadians, who paid the next highest price.  (Click to enlarge graph.)

If the graph, above, gives you heartburn, you really won't like what you see next.  Nexium, used to treat gastroesophageal reflux disease, was the seventh most dispensed medicine in America in 2008, but because of its relatively higher price, produced the second largest sales revenue as you can see in Table 1 and Table 2 here.  (Click to enlarge graph.)

Canadians' health plan paid about half what Americans paid for Nexium. Citizens of the United Kingdom, the Netherlands and France and their health plans paid about one-third what Americans paid for Nexium. German's paid only 22.5 percent of what Americans paid for this medicine.  For more on Nexium's history, read this.

One bright spot in America's pharmaceutical costs is in generic medicines.  Our costs are generally lower than those of the rest of the world as Anderson and Markovich demonstrate in this table.  (Click to enlarge table.)

Why are generics less expensive in the United States?  In a study authored by Patricia Danzon, a Wharton health care systems professor, and Michael Furukawa, a Wharton doctoral candidate funded by Merck and Company and appearing in Health Affairs in 2003, competition is an important part of the answer.  

Because some generics are available from multiple sources, whereas branded drugs and some generics are available from only a single source, competition can work to lower prices where multiple manufacturers compete.  In most countries compared with the United States, prices for drugs are negotiated or regulated,  keeping brand name prices lower relative to the U. S., but, according to Danzon, resulting in higher post-patent pricing.  Danzon does not explain why she believes this is so.  

Certainly there is no requirement that lower brand name negotiated prices must lead to higher post-patent pricing.  Post-patent drugs are usually made by a different manufacturer than the brand name manufacturer, so negotiations or price controls could be as strict for generic as for name-brand products.  Perhaps negotiations are based on therapeutic equivalency, so that a country is unwilling to pay much more for Nexium, than for Prilosec, Nexium's predecessor, which is now available as an over-the-counter medicine in America.

Generic drugs, with their lower relative cost and growing share of pharmaceuticals dispensed in the United States -- 68.3 percent in 2008 according to IMS, and growing -- is one bright spot, helping to control overall prescription drug spending in the United States.  

America Pays Most for Pharmaceuticals

For years, Americans have crossed borders to Canada or Mexico to access the far lower-priced branded pharmaceutical products available in those countries.  A few years ago, several states were setting up websites to enable residents to purchase medicines from Canadian pharmacies, essentially getting around prohibitions on drug reimportation.

So, how bad is it?  In the report Multinational Comparisons of Health Systems Data, 2009, Johns Hopkins researchers Gerard F. Anderson, Ph.d., and Patricia Markovich provide some examples.  

At $878 per capita, pharmaceutical spending was highest in the United States, by far, than in any of the 11 countries compared.  Pharmaceutical spending per capita in the United States was nearly twice as high as the median of $446 in 30 Organization for Economic Cooperation and Development (OECD) Countries.  Americans spend 27 percent more per capita for pharmaceuticals than the next most expensive country -- Canada, as you can see in this graph.  (Click to enlarge graph.)

The report's authors, provide another way to look at the relative costs of prescription medicines.  Comparing prices for the 30 most commonly prescribed drugs in 2006 and 2007, and setting the United States at a relative position of 1.0, the rest of the countries compared pay only a fraction of the amount paid in America.  Canadians pay 23 percent less.  The British pay 49 percent less.  The French pay 56 percent less.  New Zealanders pay 66 percent less.  (Click to enlarge graph.)

Tomorrow, I will take a look at prices for two of the world's most prescribed prescription medicines, and also look at one area where pharmaceuticals in America cost less than in the rest of the world.